ADT 2008 Annual Report Download - page 245

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments and Contingencies (Continued)
The Company and its subsidiaries’ income tax returns periodically are examined by various tax
authorities. See ‘‘Other Income Tax Matters’’ in note 6.
Class Action Settlement and Legacy Securities Matters
As a result of actions taken by certain of the Company’s former senior corporate management,
Tyco, some members of the Company’s former senior corporate management, including its former
General Counsel, are named defendants in a number of actions alleging violations of the disclosure
provisions of the federal securities laws. In addition, Tyco, certain of its current and former employees,
some members of the Company’s former senior corporate management are named as defendants in
several Employee Retirement Income Security Act (‘‘ERISA’’) class actions. The Company is generally
obligated to indemnify its directors and officers who are named as defendants in some or all of these
matters to the extent required by Bermuda law.
The Company has settled a number of legacy securities lawsuits in 2008 and 2007. During the third
quarter of 2008, the Company signed a definitive agreement with the plaintiff to settle the lawsuit
entitled New Jersey v. Tyco International Ltd., et al. In connection with the settlement, the Company
made a payment of $73.25 million to the plaintiffs on June 2, 2008. Pursuant to the Separation and
Distribution Agreement, the Company’s share of the settlement amount was approximately $20 million,
with Covidien and Tyco Electronics responsible for approximately $30 million and $23 million,
respectively. The Company recorded the settlement and related receivables from each of Covidien and
Tyco Electronics for their respective shares of the settlement amount in the second quarter of 2008
resulting in a net charge to selling, general and administrative expenses for its share of the settlement
of approximately $20 million.
Also in the third quarter of 2008, the Company settled the lawsuit entitled Ballard v. Tyco
International Ltd. Pursuant to the settlement, the Company made a payment of $36 million to the
plaintiffs, which was subject to the sharing formula contained in the Separation and Distribution
Agreement and resulted in the Company recording a net charge to selling, general and administrative
expense of approximately $10 million and recording receivables from Tyco Electronics and Covidien of
approximately $11 million and $15 million, respectively, in the third quarter.
In 2007, the Company settled 32 purported securities class action lawsuits arising from actions
alleged to have been taken by prior management for $2.975 billion. Of this amount, the Company
contributed $803 million, representing its share under the Separation and Distribution Agreement, to a
$2.975 billion escrow account established in connection with the settlement. All legal contingencies that
could have affected the final order approving the settlement expired on February 21, 2008, and the
claims administrator for the settlement class is currently processing claims. The settlement did not
purport to resolve all securities cases, and several of such cases remain outstanding. In addition, the
settlement did not release claims arising under ERISA and the lawsuits arising thereunder. As of the
opt-out deadline, Tyco had received opt-out notices from individuals and entities totaling approximately
4% of the shares owned by class members. A number of these individuals and entities have filed claims
separately against Tyco. Any judgments resulting from such claims or from claims that are filed in the
future would not reduce the settlement amount. Generally, the claims asserted by these plaintiffs
include claims similar to those asserted by the settling defendants; namely, violations of the disclosure
provisions of federal securities laws. Tyco intends to vigorously defend any litigation resulting from
opt-out claims. It is not possible to predict the final outcome or to estimate the amount of loss or
range of possible loss, if any, that might result from an adverse resolution of the asserted or unasserted
142 2008 Financials